transcript
- Slide 1
- This is the study of how economies in different countries and
regions of the world interact and affect one another.
- Slide 2
- International Trade Why Trade? Trade allows countries to
concentrate on what it does best and trade for what it cannot or
does not produce. This allows for specialization in certain goods,
which leads to more efficient production of those goods. Ex:
Brazil-sugar and U.S.-auto industry These are examples of countries
concentrating on what they do best. As both countries concentrate
on their strengths they both increase their overall
well-being.
- Slide 3
- International Trade Market Advantages Market advantages occur
when one country has an abundance of resources and/or can produce
certain products more efficiently and in greater quantity than a
competing nation. The 2 types of advantage are absolute advantage
and comparative advantage.
- Slide 4
- International Trade Market Advantages Absolute Advantage. A
country has an absolute advantage when they can produce a product
using less resources than another country. When a country has an
absolute advantage it means that the country can produce more of a
good than another country. Brazil has an absolute advantage over
the U.S. in sugar production. The U.S. has an absolute advantage
over Brazil in auto production.
- Slide 5
- International Trade Market Advantages Comparative Advantage A
country has a comparative advantage when they can produce something
at a lower opportunity cost than another country. When two
countries are producing 2 of the same goods, one country will
always have a comparative advantage in the production of one of the
goods. In this case each should specialize in what they do best and
trade for the other good.
- Slide 6
- International Trade Market Advantages Imagine countries
producing cars and sugar. The U.S. produces more cars and sugar
than Costa Rica. So the U.S. has an absolute advantage in both.
They can, however, benefit from trade because each has a
comparative advantage. Though Costa Rica cannot produce as much
sugar, it does not cost as much to produce the amount that they
grow. Though the U.S. can produce more sugar, they should focus on
producing cars because it costs so much to produce sugar. Because
of comparative advantage the U.S. should produce cars and Costa
Rica should produce sugar and they should trade with each
other.
- Slide 7
- Practice Pg. 75 Practice 4.1 Diagnostic Test Questions
32,48,55
- Slide 8
- Trade Restrictions and Barriers Free Trade This is trade
without government restrictions. Opponents arguments against free
trade. It hurts the poor while helping the rich. It encourages
companies to move overseas. It is bad for poor countries who cannot
compete in the global economy. It forces less economically
developed countries to abandon their own traditions and cultures in
favor of becoming more westernized. It can cause shortages in the
country that is doing the exporting.
- Slide 9
- Trade Restrictions and Barriers Free Trade cont. Supporters of
free trade argue: It creates jobs for the unemployed. It promotes
political freedom. It provides poorer countries with a chance to
grow economically. Consumers benefit because prices are lower.
- Slide 10
- Trade Restrictions and Barriers Government Regulated Trade
Governments sometimes regulate trade in an effort to help their own
nations businesses, increase jobs, help the national economy, or
even punish another nation economically.
- Slide 11
- Trade Restrictions and Barriers Types of Government Regulations
Quota-a limitation on the number of units or the amount of a
particular product that can be imported into a country. These limit
competition by restricting the number of foreign products on the
market. Though the foreign good may be cheaper, the domestic
consumers can only buy so much of it before they have to buy a
comparable domestic good.
- Slide 12
- Trade Restrictions and Barriers Types of Government Regulations
Cont. Tariffs-special taxes placed on products imported from other
countries. This will increase the price of the good and therefore
decrease the quantity demanded. This might help a domestic producer
stay in business, even though without the tariff the imported good
would have been cheaper for consumers. Both quotas and tariffs are
put in place in order to make it easier for domestic producers to
compete against foreign companies
- Slide 13
- Trade Restrictions and Barriers Types of Government Regulations
Cont. Embargo-occur when a nation, or several nations, impose
economic sanctions against a nation by refusing to trade with them.
Standards-these are specific guidelines on goods coming into the
country, (health and safety) and are designed to protect consumers.
Subsidies-payment from the government to a business to help them
survive against foreign producers rather than placing regulations
on trade.
- Slide 14
- Trade Restrictions and Barriers Reasons for Trade Barriers
Protectionism-putting policies in place that are designed to
protect domestic industries from too much foreign competition.
While protectionism might allow some domestic firms to keep
producing, allowing free trade is almost always the most efficient
way to run an economy. Health and safety-in the U.S. we protect the
health and safety of our citizens by putting standards on consumed
goods.
- Slide 15
- Trade Restrictions and Barriers Reasons for Trade Barriers
cont. National Security-if we were to import our military supplies
then we would be dependent on another nation during war time,
therefore we produce our own military supplies. Retaliation-we may
put regulations on countries who have put regulations on us in
retaliation.
- Slide 16
- Trade Restrictions and Barriers Benefits of Trade Barriers
Benefits of Trade Barriers They help domestic businesses compete.
They protect domestic jobs. They maintain safety standards in the
marketplace. They help poorer nations while they are trying to
develop economically and compete with wealthier nations.
- Slide 17
- Trade Restrictions and Barriers Costs of Trade Barriers Costs
of Trade Barriers They limit the number of goods in the
marketplace. They increase price levels.
- Slide 18
- International Trade Organizations and Agreements World Trade
Organization (WTO)-establishes rules for international trade and
helps resolve disputes between member nations. European Union
(EU)-facilitate trade and commerce between 25 European nations in
an effort to create a unified regional economy rather than national
economies. Association of Southeast Asian Nations (ASEAN)-aims to
accelerate economic growth, social progress, and cultural
development among its members.
- Slide 19
- International Trade Organizations and Agreements cont. United
Nations (UN)-seek solutions to military and economic issues. North
American Free Trade Agreement (NAFTA)- lowered trade barriers
between the U.S., Mexico and Canada. International trade can reduce
the incidence of wars between nations. When two countries economies
are linked they are less likely to go to war with each other.
- Slide 20
- Balance of Trade and Balance of Payments Balance of Trade-the
rate at which one nation trades with other nations. A favorable
balance of trade is when a country exports more than it imports. An
unfavorable balance of trade is when a country imports more than
they export.
- Slide 21
- Balance of Trade and Balance of Payments Balance of Payments-is
the value of all money coming into the country thanks to exports,
minus all of the money going out of the country as it pays for
imports. Two areas of Balance of Payments: Current Accounts-this is
trade in goods and services. Capital Accounts-this includes foreign
investments. For years we have run a current account deficit but a
capital account surplus that balances out the deficit.
- Slide 22
- Practice Pg. 83 Prac. 4.2 Diagnostic Test #
16,32,36,49,59,77
- Slide 23
- Purchasing Power and Exchange Rates Purchasing power refers to
the actual amount of goods and services that can be bought with a
given unit of money. Purchasing power parity is when the same
product sells for the same amount of currency in different
countries. The exchange rate is how much the primary form of
currency in one nation is worth in comparison to the primary form
of currency in another nation.
- Slide 24
- Purchasing Power and Exchange Rates Determining Exchange Rates
There are Three Types of Exchange Rates #1 Fixed Exchange Rates
This rate establishes a price for a foreign currency that is tied
to a stable currency of a developed country. The stable currency is
called a hard currency. #2 Floating Exchange Rates This type of
rate is determined by supply and demand. If demand for the U.S.
dollar increases or decreases it will affect the exchange
rate.
- Slide 25
- Purchasing Power and Exchange Rates Determining Exchange Rates
There are Three Types of Exchange Rates #3 Managed Floating
Exchange Rates This exchange rate floats within an agreed upon band
(via supply and demand) and if the value gets too high or low the
central bank intervenes and manages the rate.
- Slide 26
- Purchasing Power and Exchange Rates Currency Appreciation
Appreciation-when the value of a currency goes up it is said to
have appreciated. This benefits consumers because they can buy more
of a foreign good. This is bad for producers because a person
holding the appreciated currency is going to buy from foreign
countries. An appreciated currency leads to trade deficits. The
government may take steps to devalue their currency to erase these
deficits.
- Slide 27
- Purchasing Power and Exchange Rates Currency Depreciation
Depreciation-when the value of a currency goes down it is said to
have depreciated. This benefits producers because people from other
countries can now buy more of their goods. This hurts consumers
because they are unable to buy as many goods from other
countries.
- Slide 28
- Purchasing Power and Exchange Rates Factors Affecting Exchange
Rates #1 Interest Rates on Investments If the U.S. has higher rates
relative to other countries, the demand for U.S. dollars will
increase. Foreign investors will want to invest in U.S. securities
in order to collect the high interest. This increase in demand
could cause the dollar to appreciate.
- Slide 29
- Purchasing Power and Exchange Rates Factors Affecting Exchange
Rates #2 Productivity As the productivity of a country goes up so
does the demand for its currency because people need their money to
buy their goods. #3 Economic Stability The more stable an economy
is, the more foreign investors will want their currency. The
reverse of all these factors can likewise cause depreciation.
- Slide 30
- International Trade Issues Tariffs, Quotas, and other trade
agreements are issues that countries must address. For individuals
the exchange rate is one of the most important international trade
issues. The exchange rate measures the price of one nations
currency in terms of another nations currency.
- Slide 31
- Exchange Rate Example Consider there are two grocery stores;
Americo Store and Groceria Mexicana Americo Store is in
Brownsville, TX and Groceria Mexicana is across the border in
Metamores Mexico. Suppose the exchange rate between the American
Dollar and the Mexican Peso is 1:10, meaning the U.S. Dollar
translates to 10 Mexican Pesos.
- Slide 32
- Exchange Rate Example cont. Remember that exchange rates move
up and down to reflect the worth of one countrys currency in
comparison to another's. If there is high demand for U.S. products
our currency appreciates because people need our money to buy our
products. At the same time the Peso has depreciated relative to the
Dollar. This means the new exchange rate could be 1:15 meaning the
U.S. Dollar translates to 15 Pesos.
- Slide 33
- Exchange Rate Example cont. Which grocery store benefits from
the new exchange rate? Groceria Mexicana The appreciated Dollar
makes U.S. goods more expensive relative to the Mexican
counterparts. Some Americans may cross the border to buy groceries
because the exchange rate makes it lucrative.
- Slide 34
- Exchange Rate Example cont. Anyone converting Pesos to dollars
needs 15 per dollar. When a person is converting Dollars to Pesos,
his purchasing power has increased due to the new exchange rate.
When a person is converting Pesos to Dollars however, the stronger
Dollar lowers their purchasing power. Overall, business at Groceria
Mexicana would increase, while Americo stores business will
decrease as some customers cross the border to take advantage of
their strengthened currency.
- Slide 35
- Practice Pg. 89 Prac. 4.3 Diagnostic Test #
17,28,44,52,56,78